As the cost of credit rises and house prices falter, there has never been a better time to remortgage. With a little time and effort you could save yourself thousands of pounds on your home loan repayments over the coming years.
The British mortgage market is going through a fundamental shift. Whichever way you look at it, the cost of a home loan is going to rise in the months ahead. The recent global 'credit crunch' is pushing mortgage interest rates up.
So what is a remortgage? Basically, it's when you take out a new mortgage to pay off your existing mortgage while keeping your home.
If you are paying your lender's standard variable rate for your mortgage you could potentially knock 2% off your mortgage interest rate. For the average home owner, this represents a saving of about £100 a month. That's £1,200 a year, or £24,000 over 20 years.
“There are a lot of people sitting on mortgages they've had for ten to 15 years – but you're throwing money down the drain, basically,” says Moneywise editor, Rachel Williams.
“If you think of what interest rates are doing, we're in a completely different economic climate now. We have seen interest rates rise five times since last August – but they're still historically low.”
The number of homeowners in Britain who have remortgaged has rocketed in recent years as consumers become more savvy and pro-active. Most people remortgage to save money on repayments, but remortgages can also be used to release equity from your home or consolidate your debts.
If you decide to remortgage, you will find the same products as you would on the mortgage market. Fixed rate, variable rate, capped and tracker mortgages all offer their own advantages and disadvantages.
In today's uncertain market the smart money is going on fixed rate remortgages. There are still some excellent deals out there and most banks offer cheap introductory rates to new customers.
However, it is important to do your research and compare all of the products on the market to find one that suits your personal circumstances. While interest rates will give a broad indication of which are the cheapest remortgages, there are other things to look out for.
Don't get caught out be cheap introductory interest rates. Calculate how much interest you will pay on the loan over the full term of the remortgage.
Also, there are a number of fees and charges you will have to factor into the equation. If you are locked into a fixed rate mortgage with your current lender, you will most likely have to pay a redemption fee if you switch lender.
The recent trend of switching mortgage lenders has also prompted many banks and building societies to hike exit fees. On average, they have gone up from about £100 to £300. However, this summer moneyhighstreet.com revealed that you should only have to pay the exit fee rate that was stated in your original mortgage terms.
You should also examine the fees charged by your new lender and other costs. Most remortgage providers charge a set up fee for your new loan and may also charge redemption fees and exit fees if you decide to remortgage again in the future. You may also have to pay legal fees and revaluation fees to complete the switch.
Despite the costs, most homeowners in the UK are in a position to save money by remortgaging. If you do not have the time to compare products yourself, a good remortgage broker can help you find a good deal and assist you with the application process.